Investment idea on 8/27, Qualcomm.

Photo by S Sjöberg on Unsplash

Waldo’s conclusion on 8/27 :

I expect QCOM’s FY21 revenue attain $26,437M (+25% YoY)

Due to forward PE now is 20 and forward P/S is 4.7 (at Price = $116), still a cheap growth stocks in market relatively. Suggest Entry at $110, PT $133.6.

Consensus of QCOM FY2020 Rev $21,090M and FY2121 Rev $27,750M (+32% YoY)

QCOM FY month end in Sept. So, FY21 is Oct CY20 ~ Sep CY21.

1. Although QCOM cannot get licensing fee from Huawei, but high-end market share in China will be split by Apple, Vivo, Oppo and Xiaomi after Huawei cannot ship any smartphones. If Apple gains share then benefit QCOM’s QTL segment, else Vivo and Oppo gain share then benefit QCOM’s QCT segment. ( Source : 高階市場主要受益為 : Apple(33%), Vivo(8%))
2. 5G shipment will increase and penetration rate will accelerate driven by

A. lower 5G smartphone ASP (Realmi (under Oppo) announce a 5G SP with Rmb $1399 (US $200) make a new low).

B. China’s lower per GB data pricing by operators, making 5G SP penetration rate accelerate.

C. 5G base station starts building in those developing countries.

JPMe on 8/17, 5G SP for 2021 will be 525M compare to 225M in 2020. (Source : Forecast 225 mn 5G units for 2020E vs. 210 mn ) and July China SP data showed that penetration rate of 5G smartphone in July is 65%. As the 5G penetration accelerate, QCOM’s MSM ASP per unit will be higher due to better product mix. (China SP data Source : reached 9% in July, nine months after service launch; 5G；MSM ASP increase as 5G penetration rate increase Source : ***)

1. QCOM will gain share in 5G SP chips in 2021 and beyond due to ‘till 2021 QCOM is still the only solution in MMWave. MediaTek indicated their MMWave-supporting modem will not be finished until the end of 2020 and sampling to start in 2021. (MediaTek MMwave development Source : https://news.cnyes.com/news/id/4510347).

Based on Mediatek’s own projection, its MMWave-supporting modem is nearly 6 months behind Qualcomm.

1. RF business is taking off, RF for F2Q (June quarter is $750M). Assuming that FY20 can get $1.6B and FY21 can get $3B. This drive 6.6% YoY increase in FY21 revenue.

RF can grow that fast is because QCOM is promoting their customers to buy a package, which means that RF, chipset and Modem are a bundle. So whether QCOM’s market share increases or total market SP shipment increases or penetration rate increase can drive RF business to grow. (Source:7/27 JPM)

FY21 rev projection :

QTL revenue in F3Q 1044M (Huawei licensing revenue didn’t be included)

TrendForce 2Q SP shipment is 286.1M (Source : TrendForce：智慧型手機第二季生產總數年減16.7%創歷年最大跌幅，下半年市場將有望回溫)

Samsung and Apple shipment in F2Q = 286.1*33.5%=95.8435(M)

License fee per unit = 1044/286.1=3.6491

MSM ASP is 29 (disclosed by QCOM)

Market share in MSM (F3Q) = 130/286.1=0.4544

CY21 SP shipment projected by MS on 7/16 [Tech Hardware Pulse] is 1300M units

CT21 5G SP shipment projected by JPM on 8/17 [Networking and IT Hardware] is 525M units

5G SP in CY21 penetration rate = 525/1300=0.4038 (compared to 2020e = 225/1243=0.181

QCT assumption :

• As 5G penetration rate increase, I expect MSM ASP increase from 29 to 31 due to the following reasons to make QCOM QCT segment a better product mix.

1)Market share gains in CY21, driven by 5G SP ASP lead to penetration rate accelerate,

2)China lower per GB data pricing and China’s 5G SP vendors’ lower and lower 5G SP

price.

3)CY21 will have more and more developing countries’ telecom operators build up 5G

station and provide 5G services.

• MSM market share will increase from 45% to 50%, Huawei will release almost 150M shipments (Source: 華為高中低階市場市佔大約都45%，高階機種主要會由Apple, Vivo, OPPO受益，根據Canalys對2020中國手機出貨量的預測為325M(Source : Canalys forecasts China’s)

Released market share by Huawei : 150/1300=0.1154 (11.5% market share split by MediaTek and Qualcomm, here assumes 50/50)

QTL assumption :

Assuming that Apple and Samsung’s combined market share will attain 45% in CY21 benefit from Huawei’s restriction (in 2QCY20 is 33.5%)

MSM’s (include chipset) revenue in CY21 = 1300*50%*31=20150($M)

+)RF revenue in CY21 = 750*4=3,000 ($M)

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QCT revenue in CY21 = 20150+3000=23150($M)

+)QTL revenue in CY21 = 1300*3.649=4743.7 ($M)

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Total CY21 revenue = 23150+4743.7=27893.7($M)

FY21 revenue = CY21 revenue + (4QCY20–4QCY21) = 27893+7080-(27893*0.306)=26437.742

*use consensus to get Dec quarter revenue in CY20’s total revenue = 7080/(7080+5930+4893+5216)=0.3062

**4QCY20 consensus = 7080M

FY21 Rev YoY projected by Waldo :

26437/21090–1=0.2535

PT:

Use P/S as 5.7x

FY21 revenue ($M) = 26437

Ost shares (M) = 1128

PT = 5.7*26437/1128=133.5912

Upside = 133.59/116–1=0.1516

15% upside ‘till the end of Sept. CY21.